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Quester VCT PLC (KAY)

  Print      Mail a friend       Annual reports

Wednesday 17 May, 2006

Quester VCT PLC

Final Results

                                QUESTER VCT PLC                                

                              ANNUAL REPORT 2006                               

Summary of results for the year ended 28 February 2006

Per Ordinary Share   28 February 28 February  31 January
                            2006        2005        2004
Capital Values                                          
Net asset value             44.5        44.1        50.1
Share price                 37.0        44.0        45.0
Return and                                              
Interim dividend            1.25           -           -
Cumulative dividend         42.8        41.5        41.5
Total Return*               87.3        85.6        91.6
*Net asset value plus cumulative dividend               


The directors have proposed a final dividend of 2.5p per share in respect of
the year ending 28 February 2006.

Payment date 3 July 2006

Ex-dividend date 7 June 2006

Associated record date 9 June 2006



This has been an extremely active period

Your Company was merged with Quester VCT 2 plc and Quester VCT 3 plc in June
2005. The principal benefits from the merger have been an increase in the range
and diversity of the portfolio, an improved spread of risk and opportunity, a
reduction in running costs and a flow of dividends as sales are made from a
wider portfolio.

Following the merger, your Board has carried out an energetic and thorough
review of the way in which your Company's strategy will be implemented, within
the guidelines laid down last June. The new Board was augmented by Christopher
Wright, who was previously totally unconnected with Quester Capital Management
Limited ("the Manager"). Within the Manager, Simon Acland has become managing

The two areas reviewed by the Board were the process and timetable for the
realisation of the venture capital portfolio, as it existed at the time of the
merger, and the process of reinvestment of the existing liquid resources and
the proceeds from sale. This led naturally to an assessment of dividends and
dividend policy.


The merger documents indicated that the portfolio was mature and largely ready
for realisation. It is expected that it will be substantially realised over the
next three years, depending on favourable conditions continuing for companies
in our sectors.

The pace of realisations has been strong with over £10million realised in the 8
months since the merger, representing about one quarter of the portfolio by
value. Footfall Limited was sold for a profit of £2.7million; 90% over its
merger value. However, there were also disappointments, particularly in the
failure of Anadigm Limited to meet its targets in the second half of last year,
resulting in a loss of £0.7million. Overall net profits of £3.1million have
been realised from the Venture Capital portfolio in this period, which
represents an encouraging first year for the realisation process.

Building a new portfolio

Your Board also re-examined your Manager's position in the market place, and
tested its ability to reinvest the portfolio in a broad range of companies
within its areas of expertise and to build a portfolio with attractive
investment characteristics. While these sectors were disappointing from 2001 to
2005, Quester's performance in the late 80s to mid 90s, before VCTs existed,
and for VCTs from 1995 to 2001, gives your Board comfort that good returns can
be made. The Manager's skills are recognised by professional investors in its
institutional fund. The Manager will be able to take a disciplined approach,
avoiding over valued or hyped situations, and intends to create a spread of
risk across sectors, balancing early versus later stages of maturity. The Board
expects that the current period may prove to be an advantageous time in the
cycle for investment in these sectors.

Quester is one of a limited number of early stage investors with a long and
deep understanding of the information and technology sector, including
biotechnology and related pharmaceutical businesses. Your Board emphasises that
this expertise and the new portfolio which is being built, will continue in the
main to be focused in these areas and that it is possible to earn good returns
from such a portfolio. The individual investments are high risk, but the size
of your Company will enable a reasonable spread of investments to be made.

These high return opportunities may lead to disappointments and losses. It is
also clear that good overall returns will take a number of years to come
through. Since losses tend to be suffered before the high returns from
successful companies, there are likely to be a few years of dull performance
and it is only in the longer term that shareholders can expect to be able to
benefit from the overall performance of the new portfolio.

An amount of £6million has been invested in the year. Of this, £4.7million was
invested in ten new investments with the balance of £1.3million being provided
as further funding to five existing companies.

The change in net assets for the whole year, including the period prior to the
merger, is summarised in the table below

                                                               £'000  Pence per
Net asset value at 28 February 2005                           14,651       44.1
Pre-merger Formula Asset Value ("FAV") adjustment,             (221)      (0.7)
including merger costs                                                         
Merger FAV                                                    14,430       43.4
Assets acquired on merger, net of costs                       38,599      (0.3)
Net realised gains on venture capital investments              3,085        3.4
Net unrealised loss on venture capital investments           (1,558)      (1.7)
Net gains on listed equities and bonds                         1,529        1.7
Income less operating expenses                                 (194)      (0.3)
Dividends paid, less amounts reinvested                      (1,479)      (1.8)
Share buy-backs                                              (1,077)        0.1
Net asset value at 28 February 2006                           53,335       44.5

Board Changes

Simon Bakewell, who had served on the Board since the Company's inception in
1996, retired following the merger. I joined the Board (having been Chairman of
Quester VCT 2) and Christopher Wright, who has extensive experience in early
stage investing, joined the Board in July 2005. Tom Scruby, who had served as
chairman of the Board from 1996 up to the merger, is to retire at the
forthcoming AGM. Tom has continued to provide wise counsel over this period,
based on his understanding of early stage investing. On behalf of the Board, I
would like to express my thanks to both Simon and Tom for their valuable

Dividend policy and dividends

Following the merger, your Company held a portfolio of listed equities valued
at £15.6million, which has subsequently been sold down to £11.0million at the
year end. This portfolio is held, together with a small portfolio of bonds, to
provide reserves to meet the further investment needs of the venture capital
portfolio. The reduction in the listed equity portfolio reflects a reduced need
for reserves arising partly from the merger. The Company's liquid resources
have been further augmented by the proceeds of realisations and amounted to
about half of your Company's net assets at the year end. While a substantial
proportion of these funds are likely to be reinvested, there is also ample
scope to pay dividends.

HM Revenue & Customs has recently indicated it will toughen up on the rule
requiring the investment of a fixed proportion of the portfolio, namely 70%, in
venture capital investments. This change will become effective by 6 April 2007.
As the Manager intends to continue to apply a measured approach to
reinvestment, the Board currently expects to pay out useful dividends over the
next few years to satisfy this requirement. The rate will fluctuate depending
on the continuing pace of realisations, the rate of reinvestment and the need
to maintain reserves to back the new portfolio. It currently expects to pay
interim and final dividends. In accordance with VCT rules, these dividends
would be tax free.

You will be aware that, post merger, the Manager's incentive is structured to
reward payouts over the period to February 2009, the minimum target being
aggregate dividends totalling 20% of post merger FAV over that period, with a
higher hurdle of 40% for an increased payment.

An interim dividend of 1.25p per share was paid last November, at a cost of £
1.5million. In the light of all the factors above, your Board has decided to
recommend payment of a final dividend of 2.5p per share, costing approximately

Jock Birney


17 May 2006



Following the merger in June 2005, we have been focusing our efforts in three
areas: the realisation of a number of our earlier investments, supporting the
companies within the portfolio and identifying new investment opportunities. It
has been an extremely active period for the venture capital portfolio: several
exits have been achieved and we have made good progress with new investments.

The venture capital portfolio has recorded overall positive returns for the
year; the unquoted element of the portfolio generated net gains of £2.0million
whilst the quoted portion of the portfolio showed a loss of £0.5million.

We believe that the prospects for the technology sector are improving, as
evidenced by much increased M&A activity and improved sentiment towards AIM,
and this should continue through the current year. We believe that we are
therefore in a more favourable climate for early stage venture capital
investment than in recent years.

Realisation from the venture capital portfolio

The year to 28 February 2006 has been an extremely active period for the
portfolio in terms of sales achieved. We realised ten investments, either
wholly or in part, generating cash proceeds of

£10.5million and a gain of £2.9million over merger FAV, as detailed below:

Company                            Cash proceeds     Merger FAV  Gain/loss over
                                                                     merger FAV  
                                           £'000          £'000           £'000
Anadigm Limited                                -            729           (729)
Casella Group Limited                      1,121          1,121               -
Crown Sports plc                             440            435               5
Dycem Limited                                408            373              35
Footfall Limited                           5,630          2,900           2,730
HTC Healthcare Group plc                     120            120               -
International Resources Group                925            400             525
Loudeye Corp.                              1,491          1,204             287
Sirius Financial Solutions plc               128            122               6
XKO Group plc                                271            232              39
                                          10,534          7,636           2,898

We reported on the sales of Anadigm, Casella, Loudeye and Crown Sports at the
interim stage. The significant sales achieved since the half year are:

• Footfall, the leading provider of customer counting technology and statistics
to both the retail and retail property sectors, was sold to Experian, the
information solutions company, for over £35million. This was the most
significant exit for Quester VCT during the year generating proceeds of £
5.6million, a profit of £2.7million and an IRR of 13%.

• The residual holding in International Resources Group, which trades as Odgers
Ray & Berndtson, a leading executive search firm, was sold during the period.
This investment was made in 1998 and returned a total of £1.7million, including
income, on a cost of £0.4million, generating an IRR of 42%.

• The disposal of Dycem, a leading manufacturer of quality non-slip products
addressing a number of stabilisation and gripping problems and a pioneer of
contamination control flooring solutions has resulted in overall cash proceeds,
inclusive of income, of £1.5million on an original cost of £0.7million giving
rise to an IRR of 14%.

Venture Capital Investments made during the year

We continue to seek new venture capital investments. The selection process for
new investment opportunities is structured so that only those investments with
the greatest potential are chosen. It would certainly be possible to accelerate
the rate of investment by being less selective: however, we believe that this
would compromise quality and ultimately returns to investors.

Company                     Industry sector                        £'000
Cluster Seven Limited       Software                                 743
Genosis plc                 Diagnostics & devices                  1,140
Global Silicon Limited      Semiconductors                           600
Haemostatix Limited         Biotechnology                             53
Lectus Therapeutics Limited Biotechnology                            248
Level Four Software Limited Software                                 518
Nanotecture Limited         Industrial products &                     25
PanOpSys Limited            Diagnostics & devices                    240
Pelikon Limited             Electronics                              708
Perpetuum Limited           Electronics                              435

A number of these investments are made on a tranched basis, with each tranche
subject to milestones being met. This is a deliberate strategy and appropriate
reserves are maintained to fund the additional tranches of investment. This
retention of reserves is an integral aspect of early stage venture capital
investment, as it ensures the ability to continue to back investments, as and
when further funding is required.

We reported on the new investments in Global Silicon, Level Four Software,
Nanotecture and Pelikon in the interim report. The new investments made
subsequent to the half year are covered below:

• Cluster Seven develops and sells enterprise spreadsheet management software.
The company's products provide control over spreadsheets being used in mission
critical environments. In the current regulatory environment, the control of
spreadsheets is paramount and there is a substantial global market for Cluster
Seven's products. The company has built an impressive client base, principally
in the UK, and the £2.4million first round funding will be invested in product
development and expansion in the US. Henry Sallitt, a Quester director, has
joined its board.

• Genosis focuses on developing innovative and unique solutions for the
diagnosis of reproductive disorders. This is a growing market with an estimated
1 in 6 couples globally experiencing fertility issues. Genosis' first product,
Fertell, is a combined male and female home fertility test available
exclusively over-the-counter at Boots. Quester VCT's initial investment was a
pre-AIM investment. The company subsequently raised £7million on its admission
to trading on AIM in December enabling manufacturing capabilities to be scaled
up and marketing and sales resources to be enhanced.

• Haemostatix is a drug discovery company concentrating on the development of
an alternative to blood platelet transfusion. Its product, HaemoPlaxTM, is
designed to be a safer and more cost effective alternative to existing
procedures. In January, Quester led a £3.1million investment in Haemostatix,
which will enable the company to finance the development of HaemoPlax through
to preliminary clinical trials and also advance its pipeline of follow-on
products. Jonathan Gee, a Quester director, has joined its board.

• Lectus Therapeutics specialises in the discovery and development of novel
drugs (ion channel modulators) for diseases associated with pain management,
urinary incontinence and angina, offering important clinical and economic
advantages over existing therapies in this growing market. The company raised £
8.2million in the Series A funding in which Quester VCT participated alongside
leading French venture capital firm Sofinnova and the top two Japanese
pharmaceutical firms, Takeda and Astellas. The new funds will be used to
advance existing programmes and provide opportunities for commercial
partnerships with pharmaceutical companies.

• PanOpSys is a medical diagnostics company specialising in the development of
innovative diagnostic devices to be used to speed up diagnosis and improve
healthcare delivery at the point of care. The company is at an exciting stage
in the commercialisation of its patented piezofilm technology in a growing
market. The company raised £3million in a Series `A' funding led by Quester.
These funds will be used to develop a range of rapid, sensitive, whole blood
immunoassay based products for the measurement of clinically critical markers
in non-laboratory settings. Iain Wilcock, a Quester director, has joined its

• Perpetuum produces electromechanical vibration energy harvesting
micro-generators to power wireless sensor nodes, eliminating the need for hard
wiring or batteries. This technology addresses the growing and substantial
market for wireless sensor systems, which are used for a wide range of
applications. The Quester led £2.2million Series `A' funding round will enable
the company to begin commercialising its technology. Henry Sallitt has joined
the board.

The majority of these new investments are shared with Quester's institutional
fund, Quester Venture Partnership. Several of these investments have also been
seed funded by Quester managed university linked funds, as part of Quester's
proactive deal sourcing strategy.

We have also supported the existing portfolio with five further follow-on
investments totalling £1.3million:

Company                           Industry sector                  £'000
Advanced Valve Technologies       Industrial products &              261
Limited                           services                              
Anthropics Technology Limited     Communications                      25
Avidex Limited                    Biotechnology                       69
HTC Healthcare Group plc          Consumer services                  811
Teraview Limited                  Diagnostics & devices              125

Developments in the venture capital portfolio

A number of companies have made positive progress since we reported at the half

The valuations of the investments in Methuen Publishing Limited and Sibelius
Software Limited have been marked-up by £344,000 and £62,000 respectively to
reflect the perceived fair value of these investments.

Allergy Therapeutics plc, the AIM quoted company that develops and sells
allergy vaccines, has recently released positive news about one of its
products, Pollinex, progressing into phase III trials. The market has responded
positively to this news resulting in an initial 20% uplift in the share price.
The company has raised a further £19million and, encouraged by the progress
made and future prospects, we made a further £200,000 investment in April 2006.

Avidex Limited, a biotechnology company focused on the novel development of
therapeutics involving T-cell receptors leading to the treatment of cancer,
inflammation and autoimmune diseases, has secured further funding via a
significant investment from a new trade partner, Syngenta. This further funding
will take the company through to the next stage of its development and
demonstrates the progress made with its science, although the fair value of the
investment has been reduced by £326,000 to reflect the pricing of this third
party investment.
Cyclacel Limited has successfully merged with Xcyte Therapies, Inc. to form a
larger international biopharmaceutical company, Cyclacel Pharmaceuticals, Inc.,
a publicly-traded company with a franchise in one of the most exciting fields
of biology, a development-stage portfolio of targeted oncology drug candidates
affecting the cancer cell cycle and holding approximately $20million in cash.
The fair value of the investment in Cyclacel has been reduced by £437,000 to
reflect its implied valuation based upon the market valuation of Cyclacel
Pharmaceuticals, Inc.

These latter two valuation changes reflect current valuation trends across the
biotechnology sector generally, as opposed to specific performance issues with
the individual businesses themselves.

The investment in Linguaphone, previously valued at £299,000, has been written

Sector spread

The spread of sectors covered by the portfolio at 28 February 2006 is provided
in the table below:

Industry sector                    Percentage of             
                                 venture capital                    
                                    portfolio at                      Number of           
                                       valuation      Valuation     investments                       
                                               %          £'000                
Software                                    32.0          7,611              11
Diagnostics & devices                       12.2          2,901               4
Internet                                    11.6          2,748               2
Biotechnology                               11.4          2,708               6
Consumer services                            7.0          1,664               1
Publishing                                   6.2          1,463               1
Electronics                                  6.0          1,411               3
Industrial products & services               5.4          1,295               3
Communications                               4.3          1,029               2
Semiconductors                               3.9            938               2
                                           100.0         23,768              35

We will endeavour to keep a spread of investments in the portfolio so as to
maintain a balance between early stage, higher risk, investments with potential
high returns and later stage, lower risk, investments with correspondingly
lower returns. However, given that this is a venture capital portfolio, it
should be noted that all investments will remain relatively high risk.

Listed equity and bond portfolios

The listed equity portfolio has performed well over the year generating a total
return of 29.3%. The FTSE All Share Index generated a return of 22.3% over the
same period. During the year, the opportunity was taken to reduce the weighting
of this portfolio in relation to the net assets of the Company and a number of
investments were realised. At 28 February 2006, this portfolio was valued at £
11million and was showing an unrealised gain of £1.1million.

The Company retains a small bond portfolio effectively valued at par at £
2.3million. Over the year, this portfolio has provided a yield of approximately


A key objective of the merger was a reduction in running costs. Annualised post
merger running costs, amounted to 3.0% of closing net assets. This compares
favourably with the percentage for the prior year of 3.9%.


Through the merger we achieved our objectives of increasing the range and
diversity of the venture capital portfolio, an increasing pace of realisations
and a reduction in running costs. We have subsequently concentrated on
supporting companies within the portfolio, realising earlier investments and
making investments in a cross section of exciting new companies. We have made
good progress and will continue to concentrate our efforts in these areas in
the current year.

The prospects for the technology sector are improving and the climate is more
favourable for early stage venture capital investment. We are optimistic that
the investments we are now making will deliver attractive returns in the medium
to longer term.


17 May 2006

Fund Summary as at 28 February 2006

                       Industry sector      Original 
                                            Cost      Valuation Equity   % of fund
                                            £'000     £'000     % held   by value 
                                                                                                                         Quoted venture capital investments                                             
Allergy Therapeutics    Biotechnology        572      603       1.1%       1.1%
Genosis plc             Diagnostics &        1,140    1,113     6.5%       2.1%
Imagesound plc          Software             1,848    541       12.4%      1.0%
Sopheon plc             Software             178      43        0.2%       0.1%
Surfcontrol plc         Software             493      669       0.4%       1.3%
Vernalis plc            Biotechnology        886      1,166     0.5%       2.2%
XKO Group plc           Software             611      704       1.4%       1.3%
Total quoted venture capital investments     5,728    4,839                9.1%
Unquoted venture capital investments                                           
Advanced Valve          Industrial products  2,752    610       12.8%      1.1%
Technologies Limited    & services                                             
Antenova Limited        Semiconductors       1,004    1,004     5.4%       1.9%
Anthropics Technology   Communications       95       25        7.0%          -
Arithmatica Limited     Semiconductors       338      338       12.5%      0.6%
Artisan Software Tools  Software             2,100    1,173     23.4%      2.2%
Avidex Limited          Biotechnology        602      275       1.4%       0.5%
Casella Group Limited   Industrial products  1,389    598       15.8%      1.1%
                        & services                                             
Cluster Seven Limited   Software             743      743       9.3%       1.4%
Community Internet      Internet             1,015    634       17.4%      1.2%
Europe Limited                                                                 
Cyclacel Limited        Biotechnology        800      363       1.1%       0.7%
Elateral Holdings       Software             2,125    245       24.4%      0.5%
Global Silicon Limited  Semiconductors       600      600       7.6%       1.1%
Haemostatix Limited     Biotechnology        53       53        3.6%       0.1%
HTC Healthcare Group    Consumer services    2,207    1,664     36.7%      3.1%
International           Diagnostics &        1,176    690       23.9%      1.3%
Diagnostics Group plc   devices                                                
Lectus Therapeutics     Biotechnology        248      248       7.0%       0.5%
Level Four Software     Software             518      518       9.3%       1.0%
Lorantis Holdings       Biotechnology        625      625       1.7%       1.2%
Methuen Publishing      Publishing           1,119    1,463     43.7%      2.7%
Nanotecture Limited     Industrial products  87       87        0.8%       0.2%
                        & services                                             
Nomad Software Limited  Software             1,818    887       18.7%      1.7%
Opsys Management        Electronics          1,561    268          -       0.5%
PanOpSys Limited        Diagnostics &        240      240       9.1%       0.5%
Perpetuum Limited       Electronics          435      435       8.0%       0.8%
Pelikon Liimted         Electronics          708      708       5.5%       1.3%
Sibelius Software       Software             1,400    1,463     12.0%      2.7%
Sift Group Limited      Internet             2,260    2,114     14.4%      4.0%
Teraview Limited        Diagnostics &        858      858       4.9%       1.6%
Total unquoted venture capital investments   28,876   18,929              35.5%
Total venture capital                        34,604   23,768              44.6%
Listed fixed interest                        2,302    2,302                4.3%
Listed equity                                9,969    11,035              20.7%
Total investments                            46,875   37,105              69.6%
Cash and other net                           16,230   16,230              30.4%
current assets                                                                 
Net assets                                   63,105   53,335             100.0%

The respective cost of investments shown above represents the post merger cost
to Quester VCT plc. This reflects the original cost of the Company's
investments held immediately prior to the merger with Quester VCT 2 plc and
Quester VCT 3 plc together with the merger value of those investments assumed
from Quester VCT 2 and Quester VCT 3 on the merger.

Profit and loss account

For the year ended 28 February 2006

                                      Notes                                2005
                                                                     (13 months)
                                                        2006           Restated
                                                       £'000              £'000
Gain/(loss) on fair value through       1              3,056            (1,128)
profit or loss on investments                                                  
Loss on fair value through profit or                       -              (750)
loss on debtors                                                                
Income                                  2              1,070                457
Investment management fee               3              (778)              (331)
Other expenses                          4              (486)              (285)
Profit/(loss) on ordinary activities                   2,862            (2,037)
before taxation                                                                
Tax on profit/(loss) on ordinary        6                  -                  -
Profit/(loss) on ordinary activities                   2,862            (2,037)
after taxation                                                                 
Basic and diluted profit/(loss) per     8               3.3p             (5.9)p

All items in the above statement derive from continuing operations.

The Company has only one class of business and derives its income from
investments made in shares and securities and from bank deposits.

The assets and liabilities of Quester VCT 2 plc and Quester VCT 3 plc were
acquired by means of a Scheme of Arrangement during the year. The acquisition
method of accounting has been adopted.

The accompanying notes are an integral part of this statement.

Note of historical cost profits and losses

For the year ended 28 February 2006

                                                                     (13 months)
                                                          2006         Restated
                                                         £'000            £'000
Reported loss on ordinary activities                     2,862          (2,037)
before taxation                                                                
Realisation of prior year's net                            429          (5,155)
unrealised gains/(losses) on                                                   
Historical cost loss on ordinary                         3,291          (7,192)
activities before taxation                                                     
Historical cost loss for the period                      3,291          (7,192)

The accompanying notes are an integral part of this statement.


As at 28 February 2006

                                                                    (13 months)
                                                              2006     Restated
                                           Note              £'000        £'000
Fixed assets                                                                   
Investments                                                 37,105       12,677
Current assets                                                                 
Debtors                                                      1,095          793
Cash at bank                                                15,693        1,518
                                                            16,788        2,311
Creditors (amounts falling due within                        (558)        (337)
one year)                                                                      
Net current assets                                          16,230        1,974
Net assets                                                  53,335       14,651
Capital and reserves                                                           
Called-up equity share capital                               5,992        1,661
Share premium account                                       37,359        3,410
Capital redemption reserve                                     260          112
Special reserve                                              4,348        7,900
Fair value reserve                                         (2,477)      (1,474)
Profit and loss account                                      7,853        3,042
Total equity shareholders' funds                            53,335       14,651
Net asset value per share                    9               44.5p        44.1p

The financial statements were approved by the directors on 17 May 2006 and were
signed on their behalf by:

Jock Birney


The accompanying notes are an integral part of this statement.


For the year ended February 2006

                                                                (13 months)
                                                          2006    Restated
                                                         £'000       £'000
Cash inflow/(outflow) from operating                       96         (92)
Financial investment                                                      
Purchase of venture capital investments               (6,001)        (864)
Purchase of listed equities and fixed interest        (1,508)      (2,962)
Sale/redemption of venture capital investments          9,868          850
Sale/redemption of listed equity and fixed              8,190        3,240
interest securities                                                       
Amounts recovered from investments previously             166            -
Total financial investment                             10,715          264
Mergers and acquisitions                                                  
Funds received as part of the merger                    6,141            -
Merger costs                                            (220)            -
Total mergers and acquisitions                          5,921            -
Equity dividends paid                                                     
Equity dividends paid net of amounts re-              (1,480)            -
invested through Dividend Reinvestment Scheme                             
Buy back of shares                                    (1,077)        (370)
Increase/(decrease) in cash for the period             14,175        (198)
Reconciliation of net cash flow to movement                               
in net funds                                                              
Increase/(decrease) in cash for the period             14,175        (198)
Net funds at the start of the period                    1,518        1,716
Net funds at the end of the period                     15,693        1,518

The accompanying notes are an integral part of this statement.

Reconciliation of movement in shareholders' funds

For the year ended 28 February 2006

                   Share    Share    Capital Special    Fair Profit and   Total
                 capital  premium redemption reserve   value       loss        
                          account    reserve         reserve    account        
                   £'000    £'000      £'000   £'000   £'000      £'000   £'000
At 1 March 2005    1,661    3,410          -   8,012 (1,474)      3,042  14,651
Effect of              -        -        112   (112)       -          -       -
creating a                                                                     
- At 1 March       1,661    3,410        112   7,900 (1,474)      3,042  14,651
2005 (restated)                                                                
Shares issued in   4,473   34,126          -       -       -          -  38,599
connection with                                                                
the merger                                                                     
Shares issued          6       43          -       -       -          -      49
under the                                                                      
Shares purchased   (148)        -        148 (1,077)       -          - (1,077)
for cancellation                                                               
Merger costs           -    (220)          -       -       -          -   (220)
Realisation of         -        -          -       -   (429)        429       -
prior years' net                                                               
unrealised gains                                                               
on investments                                                                 
Profit on              -        -          -       -       -      2,862   2,862
activities after                                                               
Unrealsied loss        -        -          -       -   (574)        574       -
on revaluation                                                                 
of investments                                                                 
Transfer from          -        -          -  (2,475)       -      2,475       -
special reserve                                                                
to profit and                                                                  
loss account                                                                   
Interim dividend       -        -          -       -       -    (1.529) (1,529)
At 28 February     5,992   37,359        260   4,348 (2,477)      7,853  53,335


 1. Gain/(loss) on fair value through profit or loss on investments
                                                               2006 (13 months) 
                                                              £'000      £'000                           
Net gain on disposal                                         4,193        (14)
Write-off of investments                                     (729)       (839)
Write-down of debtors                                            -        (91)
Recoveries made in respect of investments previously           166          51
Unrealised loss on revaluation of investments                (574)       (235)
                                                             3,056     (1,128)

 2. Income

                                                               2006 (13 months) 
                                                              £'000      £'000          
Dividend income                                                     
Unlisted companies                                               228        37
Listed companies                                                 405        92
Interest receivable                                                 
Fixed interest securities                                        162       125
Loans to unquoted companies                                      124       154
Bank deposits                                                     82        39
Other income                                                      69        10
                                                               1,070       457

 3. Investment management fee
                                                               2006 (13 months) 
                                                              £'000      £'000  
Investment management fee                                       778         331
Irrecoverable VAT                                               104          37
                                                                882         368

Quester Capital Management Limited ("QCML") provides investment management
services to the Company under an amended and restated management agreement
dated 20 May 2005.

QCML is a wholly owned subsidiary of Querist Limited, a company in which APG
Holmes is a beneficial shareholder. APG Holmes is an executive director of

Prior to the merger, QCML was entitled to receive an annual management fee,
payable quarterly in arrears, at the rate of 2.5% on the value of the audited
net assets of the Company as at the end of the previous accounting period. This
fee was capped to ensure that the Company's running costs did not exceed 3.25%
of closing net asset value. Following the merger, QCML is entitled to receive a
management fee, determined quarterly in arrears, at the annual rate of 2.0% on
the value of the Company's net assets at the end of each quarter. This new fee
is similarly capped to ensure that the Company's running costs do not exceed
3.25% of closing net asset value. The management fee for the year amounted to £
778,000 (2005: £331,000). This is stated net of an amount of £9,000 (2005: £
116,000) being a reduction to achieve the necessary cap on running costs.

Upon the Company having paid or declared cash dividends (excluding 1.0p of the
special interim dividend paid post merger) of an aggregate amount equal to 20%
or more of the Company's Formula Asset Value (net of 1.0p of the special
interim dividend) multiplied by the number of ordinary shares in issue
immediately following the merger ("the FAV") by 28 February 2009, the Manager
will then become entitled to a performance incentive fee of 2% of the FAV.
Should cash dividends (excluding 1.0p of the special dividend) of an aggregate
amount equal to 40% or more of the FAV (net of 1.0p of the special interim
dividend) be paid or declared by the same date, the Manager will then become
entitled to an additional performance incentive fee of a further 1% of the FAV.

QCML also provides administrative and secretarial services to the Company. For
the period prior to the merger it was entitled to a fee of £44,000 per annum
(based on an amount adjusted in line with the RPI), which was pro rated to
reflect a four month period. Following the merger the fee was increased to an
annual amount of £60,000, to be adjusted annually in line with changes in the
RPI. The resulting fee for the year amounted to £55,000, as stated in note 4.

 4. Other expenses
                                                               2006 (13 months) 
                                                              £'000      £'000  
Administration and secretarial services                         55           46
Directors' remuneration (note 5)                                52           42
Auditor's remuneration                                                         
audit services                                                  14           18
non audit services                                               9            8
Legal and professional expenses                                 47           29
Insurance                                                       32           17
UKLA, LSE and registrar's fees                                  38           19
Management fees payable to OLIM Limited                         44            -
Transaction costs                                               20            -
Irrecoverable VAT                                              146           82
Other                                                           29           24
                                                               486          285

 5. Directors remuneration
                                                               2006 (13 months) 
                                                              £'000      £'000  
Fees paid to directors                                          4            13
Amounts paid to third parties, excluding VAT, in               48            29
consideration of the services of directors                                     
                                                               52            42

 6. Tax on ordinary activities
                                                               2006 (13 months) 
                                                              £'000      £'000  
Corporation tax payable                                         -             -
Reconciliation of profit on ordinary activities to                             
Profit/(loss) on ordinary activities before tax             2,862       (2,037)
Tax on profit on ordinary activities at standard UK           859         (611)
corporation tax rate of 30% (2005: 30%)                                        
Effects of:                                                                    
Non-taxable items                                         (1,107)           131
Unutilised expenses                                           248           480
Corporation tax payable                                         -             -

 7. Dividends paid and proposed
                                                               2006 (13 months) 
                                                              £'000      £'000  
Interim dividend: 1.25p per share paid 11 November 2005       1,529          -
The directors have proposed a final dividend of 2.5p per share, equivalent to £
2,996,000, in respect of the year ended 28 February 2006, which, if approved by
shareholders, would be payable on 3 July 2006.

 8. Profit per share
The profit per share of 3.3p (2005: loss of 5.9p) is based on the profit on
ordinary activities after tax of £2,862,000 (2005: loss of £2,037,000) and on
the weighted average number of ordinary shares in issue during the year of
85,789,025 (2005: 33,699,680). There is no dilution effect in respect of the
year ended 28 February 2006 (2005: £nil).

 9. Net asset value
The calculation of net asset value per share as at 28 February 2006 of 44.5p
(2005: 44.1p) is based on net assets of £53,335,000 (2005: £14,651,000) divided
by the 119,848,625 ordinary shares in issue at that date (2005: 33,227,610).
There is no dilution effect in respect of the year ended 28 February 2006
(2005: nil).

This preliminary statement, which has been agreed with the auditors, was
approved by the Board on 16 May 2006. It is not the company's statutory
accounts. The statutory accounts for the year ended 28 February 2005 have been
delivered to the Registrar of Companies and received an audit report which was
unqualified, did not include a reference to any matters to which the auditors
drew attention by way of emphasis without qualifying the report, and did not
contain statements under section 237(2) and (3) of the Companies Act 1985. The
statutory accounts for the year ended 28 February 2006 have not yet been
approved, audited or filed.

A copy of the above document will be submitted to the UK Listing Authority, and
will shortly be available for inspection at the UK Listing Authority's Document
Viewing Facility, which is situated at:

Financial Services Authority

25 The North Colonnade

Canary Wharf


E14 5HS

Copies of the full financial statements for the period ended 28 February 2006
are expected to be posted to shareholders on 19 May 2006 and will be available
to the public at the registered office of the Company at 29 Queen Anne's Gate,
London, SW1H 9BU.